Valuation reset lays the ground for a healthier market phase in 2026: Mihir Vora

The Indian equity market, a dynamic barometer of the nation's economic health and future prospects, is currently navigating a period of 'valuation reset'. This term, articulated by market expert Mihir Vora, signifies a recalibration of stock prices to more realistic levels after a period of potentially inflated valuations. Understanding this concept is crucial for competitive exam aspirants, as it reflects underlying economic shifts and policy expectations.

**Background Context: The Valuation Reset and Market Dynamics**

For much of the post-pandemic era, global equity markets, including India's, witnessed a significant bull run fueled by abundant liquidity, low interest rates, and optimistic growth projections. However, this exuberance led to stretched valuations, where stock prices grew faster than underlying earnings. The 'valuation reset' is essentially a market correction where prices adjust downwards or remain stagnant for a period, allowing corporate earnings to catch up. Several global and domestic factors contributed to this reset: global inflation, aggressive interest rate hikes by central banks (including the US Federal Reserve and the RBI), geopolitical tensions (like the Russia-Ukraine conflict), and a general slowdown in global economic growth. High interest rates increase the cost of capital for businesses and make fixed-income investments more attractive, diverting funds from equities. The moderation in global tech hype also played a role, as the tech sector, which often commands premium valuations, saw a cooling off, impacting sentiment globally.

**Mihir Vora's Vision for 2026: Catalysts for a Healthier Market**

Mihir Vora's prediction of a healthier market phase by 2026 is based on a confluence of anticipated positive developments. The primary drivers include potential income tax cuts and Goods and Services Tax (GST) cuts. Income tax cuts, particularly for individuals, would boost disposable income, leading to increased consumer spending, which is a significant component of India's GDP. For corporations, potential tax adjustments could improve profitability and encourage investment. GST cuts, on the other hand, would reduce the cost of goods and services, potentially stimulating demand and making businesses more competitive. Such fiscal policy measures are typically introduced by the Union Government through the annual Union Budget, governed by **Article 112** of the Constitution (Annual Financial Statement) and implemented via the Finance Act.

Another critical catalyst identified is a potential US trade deal. Such a deal could open up new markets for Indian exports, reduce trade barriers, and attract further foreign direct investment (FDI) into India, boosting economic activity and corporate earnings. India's pursuit of Free Trade Agreements (FTAs) is a key component of its Foreign Trade Policy, aimed at enhancing global trade integration. Lastly, the moderating global tech hype implies a more rational allocation of capital globally. As speculative investments in tech cool down, funds might flow towards more fundamentally strong economies and sectors, with India, given its robust domestic growth story, being a prime candidate.

**Key Stakeholders and Significance for India**

The stakeholders involved are diverse: the **Government of India** (responsible for fiscal policy, trade negotiations), the **Reserve Bank of India (RBI)** (monetary policy, inflation management), **Indian businesses and corporations** (beneficiaries of tax cuts, increased demand), **domestic and foreign investors (FIIs and DIIs)** (who drive market sentiment and capital flows), and **Indian consumers** (whose spending power is directly impacted by tax policies). For India, a healthier market phase by 2026 would signify sustained economic growth, increased capital formation, and potentially a more robust job market. It would enhance India's appeal as a global investment destination, attracting more foreign capital and strengthening the rupee. This positive outlook also has political implications, as a strong economy often correlates with public confidence in governance.

**Constitutional and Policy Framework**

The proposed tax cuts directly relate to India's fiscal policy. **Article 265** of the Indian Constitution mandates that "No tax shall be levied or collected except by authority of law," underscoring the legislative basis for all taxation. The Goods and Services Tax (GST) regime, introduced via the **101st Constitutional Amendment Act, 2016**, fundamentally transformed India's indirect tax structure. **Article 246A** grants concurrent power to Parliament and State Legislatures to make laws with respect to GST. The **GST Council**, established under **Article 279A**, is the apex decision-making body for GST, and any GST rate cuts would emanate from its recommendations. A US trade deal falls under the executive powers of the Union Government, often negotiated by the Ministry of Commerce and Industry, aligning with India's broader foreign policy objectives.

**Future Implications**

If Vora's predictions materialize, India could enter a phase of accelerated economic growth, driven by domestic consumption and increased investment. This would lead to higher corporate profits, potentially translating into wealth creation for investors and job opportunities for the populace. However, challenges remain, including global economic uncertainties, geopolitical risks, and the need for prudent fiscal management to balance tax cuts with revenue requirements. The RBI's monetary policy will also play a crucial role in managing inflation and supporting growth. The path to 2026 will involve careful calibration of policies to ensure sustainable and inclusive growth, reinforcing India's trajectory towards becoming a major global economic power.